By Jason Hafso, Accredited Buyer's Representative, MaxWell Challenge Realty
Hey there, future homeowners! Buying a home in Edmonton or surrounding areas? One of the first things you'll need to understand is mortgages. Let's break down the options available so you can make an informed decision.
Fixed-Rate vs. Variable-Rate Mortgages
Fixed-Rate
With a fixed-rate mortgage, your interest rate stays the same for the entire loan term. This option provides stability and is often favored by first-time homebuyers.
Variable-Rate
In a variable-rate mortgage, the interest rate may change based on market conditions. If you're comfortable with some risk, this could save you money in the long run.
Open vs. Closed Mortgages
Open Mortgage
An open mortgage offers flexibility, allowing you to pay off your loan at any time without penalties.
Closed Mortgage
A closed mortgage has restrictions on how much you can pay off yearly. However, they usually come with lower interest rates.
Down Payment
The down payment is your initial investment and typically ranges from 5% to 20%. In Edmonton, many first-time buyers opt for the minimum down payment to get into the market sooner.
Pre-Approval
Getting pre-approved gives you a ballpark figure of the mortgage you can afford. It's a valuable tool when house hunting in competitive markets like Edmonton.
First-Time Home Buyer Grants and Incentives
CMHC’s First-Time Home Buyer Incentive
The First-Time Home Buyer Incentive helps new buyers by giving them extra money for their down payment. It aims to make buying a home easier and also encourages builders to make more homes. You can get 5% of the home's value for an older home or 5-10% for a new one. This is an interest-free loan, but you need to pay it back when you sell the house or within 25 years. The payback amount will depend on how much your home is worth at that time.
First-Time Home Buyers’ Tax Credit (HBTC)
The First-Time Home Buyers' Tax Credit lets new buyers in Canada get some money back on their taxes. They can claim up to $10,000, which translates to a $1,500 tax credit. Even though it's not a huge amount, it's pretty easy to apply for and get.
Home Buyers' Plan (HBP)
Another valuable program is the Home Buyers' Plan (HBP), allowing you to withdraw up to $35,000 from your RRSPs tax-free to buy or build a qualifying home. If you’re buying with a partner who's also a first-time buyer, they can withdraw the same amount, potentially doubling your down payment.
The Tax-Free First Home Savings Account (FHSA)
The FHSA is a special savings account for your first home. You can put in up to $8,000 each year and get tax benefits on that money. The most you can save in this account over time is $40,000. If you don't use up the full $8,000 in a year, you can add it to next year's limit.
Mortgage Loan Insurance
If your down payment is less than 20%, you'll be required to get mortgage loan insurance. While this adds to your cost, it's also what enables you to buy a home with a smaller down payment.
In the dynamic Edmonton real estate market, understanding your mortgage options is crucial. Whether you're eyeing a downtown condo or a family home in a surrounding community, make sure you're financially prepared.
Looking for more advice on buying a home in Edmonton and surrounding areas? Contact Jason Hafso, your local Accredited Buyer's Representative at MaxWell Challenge Realty.
